THE BUSINESS WE MEANT TO BUILD

How good businesses lose their way

Chapter 17 – The Adviser Who Always Agrees With You

There is a particular type of meeting I have sat through many times over the years, and at first glance it looks like a very successful one. The accounts are on the table, turnover is up, profit has improved, the tax bill is manageable and everybody around the room appears reasonably pleased with themselves. Somebody says, “Well done,” somebody else points to the percentage increase, and the owner leaves with the comforting impression that another year has been successfully negotiated. What sometimes concerns me is that nobody has asked whether it was actually the year the owner intended to have.

That question matters more than it first appears, because businesses do not generally begin the year with the objective of simply producing a set of numbers higher than the previous set. They begin with intentions, whether those intentions are formally written into a business planner or carried less formally in the owner’s head. The plan may have been to improve profitability, reduce dependence upon the owner, spend more time with family, strengthen cash reserves, reduce debt, prepare the business for sale, improve systems or simply create a business that does not require the owner to be everywhere at once. Those intentions are the reason the numbers matter in the first place.

Twelve months later turnover may be up 20 per cent and profit up 10 per cent, which sounds impressive until somebody asks what happened to everything else. Perhaps the owner is now working seventy hours instead of fifty, debtors have blown out, another two employees have been added, cash is tighter and every significant decision still lands on the owner’s desk. The accountant may quite properly say that the financial result improved, but the adviser should probably be asking whether the business improved. A better number and a better business are not automatically the same thing.

That is where I have always believed the distinction between process and advice begins. Process asks whether the numbers have been recorded correctly, whether the accounts reconcile and whether the obligations arising from them have been dealt with. Advice asks what those numbers mean in the context of what the owner said they were trying to achieve, and whether the decisions behind them have moved the business closer to that position. Both roles matter, but they are not interchangeable simply because the same accountant happens to perform them.

There is nothing wrong with process because businesses desperately need it. Accounts need to be reconciled, returns lodged, payroll completed, tax liabilities calculated, records maintained and the endless machinery of compliance kept moving. Much of accounting is necessarily built around what I have called the Discipline of Boring, because businesses that neglect those ordinary activities usually discover eventually why they mattered. The problem begins when the completion of the process is mistaken for the provision of advice.

That confusion can happen remarkably easily because the language sounds similar. An accountant can sit with a client, explain the figures, discuss the tax result, point to improvements and make intelligent observations about what happened during the year without ever really entering the business decision. The client may leave believing they have received business advice when, in reality, they have received a competent explanation of history. History is useful, but it becomes far more useful when somebody asks what we intend to do differently because of it.

This is where my occasional description of the accounting “sausage factory” still has relevance, although the problem is broader than high-volume practices such as ITP, H&R Block or any other compliance-driven operation. A high-volume practice necessarily needs systems, repetition and efficiency because that is how large quantities of returns and accounts can be processed economically and accurately. There is nothing inherently wrong with that model when the client understands what they are purchasing. The weakness appears when the business owner expects a production process to provide the depth of challenge, memory and debate that genuine advisory work requires.

A sausage factory can make a perfectly good sausage, and there is no criticism inherent in acknowledging that fact. What it does not ordinarily do is stop the conveyor belt to ask whether the farmer should still be raising pigs, whether the farm is producing the return originally intended, or whether the farmer even wants to remain a farmer five years from now. Those are different questions requiring a different relationship. The danger is not the existence of the sausage factory but the assumption that everything called accounting must provide the same service.

For many years one of the four pillars of Banks Consultancy was that we would act like a “silent” partner in the client’s business. The quotation marks around silent were always important because I never had any intention of sitting silently while a client made decisions that appeared inconsistent with what they had previously told me they wanted. The role was not to control the business, impose my ambition upon the owner or somehow obtain a vote that did not belong to me. It was to understand enough about the business and its direction that, when necessary, I could say, “Hang on a minute, wasn’t this supposed to be taking us somewhere else?”

Small business makes that role particularly important because there is often nobody else around the table. Large companies have boards, CFOs, senior executives, independent directors, management committees and layers of people whose function includes questioning proposals before they become decisions. A chief executive may have considerable authority, but there are usually other voices capable of asking what happens if the assumptions prove wrong. The microcosm of small business can be very different.

The small-business owner may effectively be chairman, chief executive, finance director, sales manager, operations manager and majority shareholder at the same time. Their employees depend upon them for wages, their family naturally wants the business to succeed, their suppliers are generally happy to sell them more and their customers usually view the business through their own needs. If the accountant then joins this tiny boardroom merely to applaud the latest result, there may be nobody left whose role is to create genuine debate. The owner can therefore be surrounded by people and still make every important decision largely alone.

That is where the yes-man adviser becomes dangerous, although I do not think the yes man is necessarily incompetent, dishonest or lazy. In many cases they may simply be pleasant, supportive and reluctant to create conflict with somebody paying their fees. They may have discovered over many years that clients generally enjoy being congratulated considerably more than they enjoy being questioned. Agreement is comfortable for everybody involved, which is probably why it can survive for so long without anybody examining its value.

There is a commercial attraction in agreement as well. Telling somebody their business is doing wonderfully creates a very different atmosphere from asking why the profit improvement required another twenty hours of their life each week. Praising an acquisition is easier than asking how it advances the plan, while admiring turnover growth is certainly more comfortable than wondering whether the business has become busier without becoming stronger. An adviser who always agrees may therefore produce very pleasant meetings, but pleasant meetings and useful meetings are not necessarily the same thing.

The owner can contribute to the problem just as easily. Many business people say they want an adviser who challenges them, but that enthusiasm can disappear remarkably quickly when the challenge concerns something they have already emotionally decided to do. There is a considerable difference between seeking advice and seeking permission, even though both can begin with the same words: “What do you think?” If the answer has already been chosen, the adviser is really being asked to provide comfort rather than thought.

If every contrary opinion is treated as negativity and every uncomfortable question as a lack of support, the client gradually trains the adviser. The accountant learns which subjects are safe, which proposals should be praised and which questions create unnecessary friction in the relationship. Eventually both sides can convince themselves they have developed a strong advisory partnership while carefully avoiding the very debates that would make that partnership valuable. The yes man is sometimes created by the owner who insists they do not want one.

Perhaps the better question is therefore not simply whether your accountant challenges you, but whether you have created a relationship in which challenge is genuinely welcome. Are you inviting somebody to test the decision, or merely to admire it once it has effectively been made? Do you want another mind brought into the room, or another voice added to the applause? Those questions may be uncomfortable, but they apply just as much to the person seeking advice as they do to the person giving it.

The business planner provides a particularly useful place to test all of this. I have always found it interesting how much effort businesses can invest in budgets, projections, KPIs, strategic plans and five-year objectives, only to abandon the underlying purpose once the year begins. The planner says one thing, daily activity gradually takes the business somewhere else, and the year-end accounts are then judged according to whether the numbers went up rather than whether the intended destination was reached. The numbers become the goal simply because they are easier to measure than the reason they were being pursued.

Imagine that the stated objective was to make the business less dependent upon the owner within three years. Revenue grows strongly in year one, profit improves and everybody congratulates the result, yet every new customer has increased the owner’s workload and every new employee still requires the owner’s involvement. Financially, the business appears stronger, while strategically it may have moved further away from its stated objective. That is precisely the moment when an adviser should be prepared to interrupt the celebration.

The interruption is not intended to diminish the achievement because increased profit may be genuinely valuable. Nor should growth automatically be criticised simply because the owner has become busier, particularly where greater workload was understood as a temporary price for achieving a larger objective. The question is whether the trade-off was intended, understood and consistent with the plan. A good result can still deserve examination before it receives applause.

This distinction is often lost because accounting naturally gravitates towards measurement. We measure sales, gross profit, wages, expenses, debtors, tax, cash and hundreds of other things because numbers give us something concrete to examine. What we sometimes forget is that measurement becomes meaningful only when we remember what we were trying to measure progress towards. A number can improve while the underlying objective deteriorates.

That creates what I consider one of the most useful questions in any advisory relationship: did we achieve a better result, or did we achieve the result we were trying to achieve? The difference between those questions can change an entire conversation. One asks us to compare this year with last year, while the other asks us to compare this year with the destination. Both comparisons matter, but only one tells us whether the business is still travelling in the intended direction.

Profit may have increased by $80,000, for example, and that deserves recognition. The adviser’s next question might reasonably be what that additional $80,000 moved the owner closer to achieving, and what was required to produce it. Perhaps it strengthened retirement savings, reduced debt, funded an investment or created the security the owner had been pursuing for years. If so, the improvement has both a number and a purpose.

On another occasion there may be no satisfactory answer because the business has simply become larger. Turnover became the target because turnover was easily measured, growth became desirable because business culture constantly praises growth, and employing more people became evidence of success because headcount looked impressive. Somewhere along the way the owner built a larger organisation without ever deciding whether a larger organisation was actually the objective. The adviser who remembers the original plan becomes valuable precisely because everybody else has become distracted by the scorecard.

That thought sits naturally alongside The Little Blue School Book and its recurring question about whose definition of success is actually being pursued. Business owners can easily inherit someone else’s measures of achievement without consciously choosing them. Bigger, faster, more locations, more employees and more turnover may all be entirely legitimate ambitions, but they deserve to be chosen rather than absorbed. The owner’s dream should determine the measurements, rather than the measurements slowly redefining the dream.

There is an equally strong connection with What the Accountant Saw, because the accountant should be capable of seeing more than the profit and loss statement. The accounts may reveal a profitable business while the relationship reveals an exhausted owner, increasing complexity, deteriorating cash flow and growing dependence upon one person. Neither picture is necessarily false, but the financial statements alone cannot tell the entire story. Advice begins when somebody is prepared to place the pictures beside each other and ask what they collectively mean.

That is why I have never believed an adviser’s primary value lies in having all the answers. Sometimes the greatest value is simply remembering the question everyone else has forgotten, particularly when the excitement of the latest result has filled the room. What were we trying to achieve, what did we say mattered, what compromises were we prepared to accept and has the business moved closer to that position? An accountant willing to ask those questions may contribute more in five minutes than somebody who spends an hour explaining why the numbers improved.

A genuine “silent” partner should therefore be prepared to ask why the owner wants another location when the original objective was to simplify the business. They might question whether employing another salesperson will improve profit or merely increase activity, whether another piece of equipment solves a capacity problem or simply creates another repayment, and whether the new opportunity belongs inside the plan at all. None of those questions tells the owner what decision to make. They simply require the decision to survive a little examination before real money and real consequences become attached to it.

The adviser may still be wrong, and that needs to remain part of the discussion. There have undoubtedly been occasions during my career when clients proceeded with ideas I questioned and proved themselves entirely correct. Challenge does not confer infallibility, just as experience does not create ownership of somebody else’s business. Its value is that the decision has been debated rather than merely admired.

CANEI, Constant and Never-Ending Improvement, fits naturally into this relationship because improvement requires something more demanding than applause. If every result is praised simply because it exceeds last year, there is little encouragement to examine whether the same outcome could have been achieved with less complexity, less risk, less capital or less dependence upon the owner. Continual improvement does not mean continual criticism, and nobody needs an accountant searching desperately for something negative to say. It does mean being sufficiently curious to wonder whether good can still become better without losing sight of why better matters.

Perhaps that is ultimately the distinction between process and advisory. Process tells us whether what happened has been recorded correctly, while advisory asks whether what happened was consistent with what we intended to create. Process is essential because without reliable information the conversation becomes guesswork, but the information should eventually lead somewhere. Otherwise we risk building increasingly sophisticated systems for accurately reporting journeys nobody consciously chose to take.

There are therefore a few questions worth carrying into the next meeting with an adviser, although they are questions for both sides of the table. Does the adviser remember what you said you were trying to build, or do they simply compare this year’s numbers with last year’s? Do they understand enough about the business to disagree intelligently, and have you created enough room in the relationship for them to do so? Most importantly, when the results look good on paper, is anybody still prepared to ask whether they are the results you originally wanted?

A business owner deserves an accountant capable of processing the numbers properly because accurate information remains the foundation of meaningful discussion. If the relationship is supposed to extend beyond compliance, however, the owner also deserves somebody prepared to look beyond the applause and test the result against the objective. That person does not need to oppose every idea, dominate every conversation or turn every meeting into an argument. They simply need enough understanding, courage and involvement to recognise when agreement has become easier than advice.

The accountant does not get a vote in the client’s business, and nor should they, because the risk, reward and consequences ultimately belong to the owner. A worthwhile adviser should nevertheless help ensure there has been a proper debate before that vote is cast, particularly where the decision seems inconsistent with the destination previously chosen. Sometimes the most valuable words an accountant can offer are not “well done” or “I agree,” but a quieter and far more useful question: “Hang on a minute, wasn’t this supposed to be taking us somewhere else?”